Paying Property Taxes a Year Early

People who own real estate must pay property taxes every year, and there are income tax advantages if you pay your property taxes early. This applies to people who own a home as their residence, and to people who own rental property. Since property taxes are deductible, you can benefit by paying early.

If you are seeking to lower your taxable income for the current year, the IRS allows you to deduct the amount you pay in property taxes and it does not matter when they are due. You are allowed to take the deduction in the year you pay them. By doing this, you are essentially shifting a tax deduction from the upcoming year to the existing year.
To clarify this point, if you paid your 2014 taxes in 2014, you could also pay your 2015 taxes in 2014, which means that you would be able to deduct twice as much as in a normal year. You would then lose your ability to claim that deduction for your 2015 tax return, unless you paid your 2016 taxes early as well.

In the above example, your 2015 taxes would be pre-paid so your lender may reduce your mortgage payment if your tax bill does not show anything owed for the year. If you intend to pre-pay your property taxes in order to take an early income reduction, be sure to speak to your lender about your options and any fees associated with adjustments to your escrow.

It is important to note that if you qualify for an alternative minimum tax payment, you may not be able to take any deductions for pre-paying your property taxes. The alternative minimum tax was designed to avoid situations where high-income individuals avoid paying taxes through a large number of deductions. If your income meets IRS requirements, you will need to pay the alternative minimum tax.

If you have questions about accelerating your tax deductions or if you are concerned about whether you meet the requirements for an alternative minimum tax, be sure to contact us at iRefund today. Our skilled tax professionals can provide you with sound tax advice to help you make the right decisions regarding your deductions